Category: Innovation

Professor Peter Checkland has written a number of books about systems, and in 1981 published Systems Thinking, Systems Practice.

As one of the commentators on Amazon writes, the book elegantly describes the history of thought that led from early Greek logic displacing the religious and faith based approaches through to stunningly successful scientific reductionism and then to systems thinking.

The modern world is so much a result of reductive thinking – of breaking things into parts and understanding how they work – that we sometimes think that’s the only way to look at things.

The systems approach captures the idea of emergence – the fact that some things cannot be explained just by looking at its components – the idea that the whole is more – is something other – than the sum of its parts.

Many of us want to know the detail – how did something happen – what did someone else do, so that we can replicate or copy those tactics and apply them in our own lives and situations.

This works sometimes, and doesn’t at other times. Human beings and the way we function cannot be reduced to formulas.

If anything, human societies are constantly changing how we act in response to what we learn about what happens when we act the way we do.

So, when it comes to systems, Checkland suggests that there are three ways we tend to approach them.

First, a system could be looked at as a black box – with inputs, outputs and feedback. We look at what comes out of the box and adjust the inputs to get what we want.

This approach is mechanistic and assumes that the same input will always give the same output all else being equal.

Which it rarely is.

A stable system, however, that operates within a reasonable range, will give a set of outputs that are more or less regular, and we could use statistical methods to then figure out what might come out of the system.

Other people want to look inside the system, to figure out how it works.

That’s another approach – more reductionist – as we look at the workings of the system in detail and see what happens.

It’s like dissection – we can keep going through organs, cells, all the way down to atoms.

So, given that we can look at systems from the outside, or try to look inside them, Checkland writes that we tend to adopt three approaches.

The natural historian looks at the system and describes it. This is like an academic’s approach to social studies – we have no interest in changing what is there but we do want to try and capture what is happening.

A manager tries to organise things so that the system works well. This involves moving bits around and trying different approaches.

A designer tries to come up with a new system or modify an existing system so it does something better or differently.

All three look at the same system, but from different points of view. And this means that they have to work hard to understand what the other is doing.

A designer wants to change things around, and could be impatient with a manager that wants to do the most with what is there.

And the natural historian doesn’t want things to change, but does want to know what is going on.

The point is that we need all three – we can’t manage what we can’t describe, and we can’t design something when we don’t understand what we are trying to achieve.

Just like the starting point, trying to break things down into roles and pieces just doesn’t help when we’re trying to understand the entirety of something.

We’re trying to get at the whole thing – and that is what it means to take a holistic approach.

Are the businesses around us as effective as they could be at using technology to improve how they do things – from serving customers to keeping costs low?

As we move into an increasingly digitized economy, what kinds of organisations are likely to take advantage of the new opportunities that emerge?

A paper from 1999 by James Y.L Thong may still have useful lessons for us nearly twenty years later.

The core systems that businesses require are more or less understood. Almost every business is probably going to have email, some kind of office software and a website.

But what happens after that… what about customer relationship management (CRM) systems, specialist analytics tools, marketing software and so on?

Thong’s paper argues that there are three key characteristics shown by businesses that adopt information systems (IS).

First, CEO’s matter a lot.

CEO’s that are innovative and open to trying new things are much more likely to put their weight behind an IS initiative than more conservative ones.

The amount of control held by CEOs over decisions in small firms means their approach is critical in making something happen or not.

In addition, their approach will also be influenced by how much they personally know and understand the technology being considered.

Someone who is unfamiliar with computers and suspicious of technology may be unwilling to engage and understand what is possible with modern systems.

This is not an age related thing – many older CEOs and Chairman have reached their positions by being ahead of the technology curve at every stage of their careers.

It’s an attitude thing instead.

Second – the innovation matters

People will only think about adopting something new when the benefits of doing so are clear.

We tend to use at least three rules of thumb to evaluate technological options.

1. Is it better than what we have now – does it have relative advantage?
2. Is it compatible with how we work now?
3. Is it easy to use – or at least no more complex than how we do things now.

If an innovation passes these three tests, then there is a good chance we’ll consider it further.

The main thing is whether the organisation is at the right point in its lifecycle

An organisation that is too small is struggling to survive. It probably has owner managers and generalist staff.

The in-house technical people needed to properly evaluate and implement a new information system simply aren’t there.

In larger organisations with more defined roles it’s more likely there are a few people with the capability to take on the necessary jobs.

Larger businesses may also have more money to hire outside help with specialist skills.

The main difference between 1999 and now is the amount of capability aware as a service – the software as a service or SAAS model.

Email, documents, file storage, file sharing, email marketing, website design – all the capabilities that would have taken teams of people to create are now available over the internet with simple interfaces most people can use quickly.

The challenging area now is selecting and using specialist software that helps businesses do unique work.

Things haven’t changed over the decades. It’s not really about software.

It’s always about the business and the people in it.

There is one business book that Steve Jobs said deeply influenced him – The Innovator’s Dilemma by Clayton M. Christensen.

Here’s what happens with a company. The founders have an idea and create a product of a service. In the beginning the product has some core functionality and some users take it – perhaps its cheap and does the main things they need it to do.

This is the low end of the market – where adequate performance is just fine.

Over time, the founders improve the product and build the company. There are more people, more iterations of the product and it gets better and better and just climbs up the S-curve of performance.

At some point, the product satisfies the needs of virtually all its customers – even the ones demanding high end performance and superior quality.

The company is now established, has lots of customers, is profitable and seems to dominate its space.

What are the founders doing now?

Perhaps they’ve been replaced by executives and have retired to a beach somewhere.

The execs come in with suits and briefcases and do what the company does best. The double down on the products that are doing well creating even more capability and features.

The only companies that can afford their high end tools are the large, established ones. The little customers aren’t attractive anymore.

The market doesn’t really need these whizz bangy things but, well, the execs might as well keep going and offer more options.

Along the way, they might create some new tech or capability, but its not really that interesting to customers and doesn’t get attention or resources – everyone’s focus is on the main earners.

Some of the people working on this other cool stuff get dejected and think about leaving and starting out on their own.

They ditch the suits, come to work in t-shirts and shorts, perhaps on a skateboard, and get on developing the tech that the large company rejected in a new startup.

This new tech is newer, probably faster, cheaper, easier to maintain and so costs much less than the older, more established technology of the incumbent.

The suits are going to find that they are standing at the edge of a precipice – they just don’t know it yet.

The startup tech is adopted by the low end of the market. In its new, unrefined form it does what is needed by these customers and starts building market share.

Soon, its climbing a new S-curve.

Finally, the suits look down in horror and see that the startup has hoovered up all the small customers they have been ignoring.

It’s now too late to create competing technology. Perhaps they can buy the startup and survive that way. Or else that’s it – they’re now walking dead and business is moving wholesale to the new company.

This disruptive cycle is the dilemma faced by the innovator.

We often think that companies go out of business because they fail to innovate.

According to Christensen, that’s not the case. The incumbents do their core business really well. They don’t invest in their fringe ideas because the return on investment isn’t proven – and they make sensible asset allocation decisions in proven markets and technologies.

Those perfectly sensible actions allow the startup to take root, grow and eventually disrupt the incumbent’s market.

A B2B CEO or MD needs to know which S-curve their company is on – the incumbent’s or the startup’s – and where it stands on the slope.

They need to know that before doing anything else.

We are warned about how groupthink destroys creativity with sayings like a camel is a horse designed by a committee.

People making decisions in groups have sent astronauts to the moon and started two world wars – they have created the modern world and carried out genocide.

So, when is groupthink good and bad and can we recognise the difference?

One thing that often happens is that a group tries to reach a solution that is acceptable to everyone.

This usually results in a bland compromise – with everyone being served vanilla ice cream.

Is the way we live a compromise then?

Our societies operate within a framework of laws set out by a group of people who set out to debate and agree acceptable ways of living.

The difference is that each legislator fights for his or her constituents, and it is the process of debate and negotiation that results in laws.

Perhaps there is some insight in that process.

If a group of people try and decide what is best for a group as a whole, then at best they will come up with vanilla ice cream.

At worst, they will come up with the idea of fighting another group and starting a war.

Neither option is particularly attractive.

What seems to work better is people doing things that are in their best interests and standing up for what they want.

It’s more like a market, where everyone has a choice where to put their time, energy and money.

The individual decisions that they make create larger flows of decisions in the population, from which collective ideas and choices emerge.

This bottom up approach results in a more robust way of life and forms democracy as we know it.

As Churchill said democracy is the worst form of government, except for all the others that have been tried from time to time.

We can’t avoid operating in groups – that is the way society is organised and functions.

What we need to be aware of is how quickly groups can start to function poorly. All we need to do is look around the world at conflict zones to see how this happens.

Individuals acting in their own interests but cooperating in a group tend to come up with societal structures that have a chance to endure.

Decisions imposed on groups have to be enforced – and lead eventually to a more coercive form of control and government.

So… to make groups work better, we must try harder to think for ourselves.

But even then, we’ll probably vote for vanilla much of the time.